CBO’s 2015 Long-Term Projections for Social Security: Additional Information
CBO’s 2015 Long-Term Projections for Social Security: Additional Information
The Social Security Policy Options, 2015 was not the only report released by CBO yesterday. You have this one filling out the details in the Long-Term Budget Outlook
Haven’t read this one either. So you all get first shot at framing the debate! Go get ’em Tigers!
Spending and Revenues Measured Relative to Taxable Payroll (p.3)
So half the change in projection is lower interest rates and the other half an increase in income inequality. Are those assumptions reasonable? Acceptable? Subject to policy decision by Congress or the Fed? Lots of questions. Few of which can be answered by “Even CBO says —”
CBO its own words (if in a footnote) on Mortality:
Yes you read that right. CBO simply abandoned SSA’s detailed projections of changes in future mortality in favor of “Fuck, who Knows? Just assume the future is exactly like the past because Why Not?”
(And when I said you all could frame the debate? I lied. Plus I got editing tools for comments. As Mel Brook’s said in History of the World: Part 1 “It is Good to be King”)
Love that movie.
Bruce:
This CBO Director makes Elmendorf look like a saint. I would be curious to know how he is calculated PV. The current rage in Student Loans is to use Fair Market Value (Delisle, Changos, Akers) using high risk values when there is little or no risk. He is politically motivated and the CBO is more partisan now than ever.
The best that can be said about USA future growth projection of anything may be that their less accurate than projection of the local weather reports. Plus the CBO which at one time seemed reliable seems as corrupt as any other agency of our government today.
Webb – I agree that estimates on mortality 50-75 years from now is a fools game. We could cure cure cancer and live to 100, or we could have a pandemic flu that has a high mortality rate on seniors and the average falls significantly.
But – I don’t think mortality, % rates or changes to DI rates is a big factor when pondering what to do about 2029. That is just 13 years away.
Sustained solvency for the 75 year period should not be a focus of policy changes. We need to address the gap that we know is coming.
In 2029 the average SS benefit will be higher, but so will the cost of everything. I think the economic/social consequences of a 30% drop in SS benefits in 2030 will not be much different that a 30% drop in 2016.
If we fell of this cliff in 2016 it would have very significant consequences to many seniors. It would have similar consequences in 2030.
If a 30% cut happened in 2016 it would mean a reduction of benefits of $280B or 5.2% of GDP. If a 30% cut happens in 2030 it means a cut of $660B or 5.5% of GDP.(2015 SSA intermediate assumptions)
The consequences as a % of GDP are similar even though the $s are much different. The impact to seniors in 2016 is not much different that what seniors would feel in 2030.
Bottom line – I don’t buy into you argument of a “basket of goods”. That basket will not change because everything is indexed. A 30% hit in 2016 would hurt about the same as a 30% hit in 2030.
Then why are you always harping on I&P numbers that ARE based on the 75 year period? You can’t have it both ways. If you want to use the actuarial gap as projected over the 25 year subperiod or the 50 year subperiod then fine, we have those numbers and those tables. But when it suits you all of a sudden the relevant number is “4.4% I&P”. Pick a baseline and stick to it.
Yes a small hole can sink a great ship . So to avoid this slow sinking ship problem there may be a few things we could do now to better avoid the later. One would be to better define the disability rules or perhaps even put all disability claims set up in a different fund that is funded differently. Next we could take a closer look at the “file and suspend” rule to see if this rule is not just a loop hole for some to game the system for their advantage that others may not be able to do. We should also be looking at the “Stretch IRA” rule that will avoid taxes as I believe that all IRA’s should become tax free investments to supplement future SSA benefits. The privatizing of SS actually means that because future benefits are most likely to become diluted we all must pick up that slack or responsibility through greater unearned income opportunities. If government solvency, integrity and credibility means nothing to you then just keep sticking stupid stuff into the federal budget at the last minute that we cannot afford or need to pay for until Paul Ryan has to shut down the government in protest again.
Sigh. Disability is set up in a different fund. Though yes I agree it should be funded differently. But I would fund it directly from General Funds, perhaps not the direction you would go. And they just radically modified “file and suspend” in a way that eliminated what many saw as “loopholes” but which did have some perhaps harmful consequences, particularly for divorced spouses. So I think you have some catching up to do, this literally isn’t your father’s Social Security, things have actually changed a lot and recently.
I agree that a 30% sudden cut is a bad thing whenever it occurs (although I think it is less bad in the future assuming that average wages rise faster than inflation). But I think this sudden cut is very unlikely – a sudden jump in payroll taxes would work just as well, would only cost workers a few percent of their pay in order to preserve their own benefits when they retire, and I think would be vastly more popular than the benefit cut. I don’t think any of CBO’s options included cuts to current or near retirees (except chained CPI), and very few politicians advocate such cuts. So the main fix will have to be tax increases – some cuts for future retirees might well be the political price for tax increases, but their effect on the system finances will be too slow to have much effect on avoiding Trust Fund exhaustion.
Mike B – If the CBO yardstick of the required tax increase were implemented it would mean a 4.4% tax on payrolls. In 2016 it would mean a tax increase of $328B.
That is a huge increase and would have significant consequences to the economy. It would be the largest single tax increase ever. The increase would be a burden that would likely trigger a recession.
There is no way that congress would vote to do this in 2016. I don’t think it would be possible in 2029 either.
Bkrasting – Certainly a sudden increase in payroll taxes now would be a bad idea – but cutting benefits by the same amount would also have a very negative effect on the economy (triggering a recession) and would be a huge burden on those would bear the cut. I don’t know what the situation will be in 2029, in terms of the economy’s ability to cope with a drop in demand. But I think that happens whether you raise taxes or cut benefits, so I think the tax increases are better because they spread the burden out more (and preserve benefit levels, which are hardly excessive). If the economy is sluggish whenever tax increases are implemented, then the government can always spend more to increase demand (as it should be doing now).
I agree that right now Congress is very unlikely to implement tax increases, which is why I think ‘do nothing’ is fine for now. What future Congresses will do I don’t know – eventually, they will have to do something. It’s hard to imagine them agreeing to a large tax increase, but even harder to imagine them agreeing to allow current retirees to endure a huge benefit cut. (Of course, the tax increases or benefit cuts could be gradual, which would probably be better, but doesn’t change the basic logic.)
Mike B – The consequences of a 330b cut in benefits would hurt more than a 330B tax increase. More than 50% of all seniors rely on the monthly benefit. A cut of this magnitude would be a terrible outcome. This is the ‘cat food” option, and has to be avoided.
But both would probably trigger a recession.
Webb says “do nothing”. But that is not a plan. It would insure a bad outcome. The ‘do nothing’ only insures that the Baby Boomers get paid, and every generation after them get screwed with high taxes and lower benefits. Where is the fairness in that plan?
‘Do nothing, ever’ would actually be much worse for most Baby Boomers than current proposals to do something. In 2029, mid-Baby Boomers will be in their early 70s, so the 30% cut would affect them for about 15 years on average. Current proposals to cut benefits would affect only the youngest Boomers, and current proposals to raise taxes wouldn’t affect Boomers much since most of their working years are over.
I am a Boomer, and I mostly am interested in preserving the system for younger people – if they want lower benefits as opposed to higher taxes, that’s OK with me, although I don’t think most of them would want that if they knew the facts. Even though it looks like younger people will get higher taxes or lower benefits, they should also having higher standards of living and longer life expectancy. That might not be true – lately most of the economic gains are going to the people at the top, and the ecological situation is going to hell in many ways (climate change being only one). Fixing those problems is more important than what we do with Social Security as far as the welfare of younger people (and future generations).
MIke makes an important point.
For decades now the Right has used “Social Security Crisis” for all kinds of purposes beyond the straightforward one of cutting the program they have always hated. For one they have used it as evidence that all Big Government Programs, however well intentioned and however popular are ultimately doomed. Because Reasons. And duh, Big Government. Because of that Social Security Solvency and ESPECIALLY Social Security Solvency based on a Plan of ‘Nothing’ is a huge threat. Which is why the Shills like to bleat and whine and claim “even the Trustees say—” rather than debate the issue on the numbers. Could we address Social Security’s actuarial gap by policy focused on increasing Real Wages? How about incremental increases in payroll tax? Hell NO we can’t!!!! Because that might imply that this Biggest of Big Government Programs is not Anti-Proof of Concept. That is the Right doesn’t want Social Security “fixed” unless by “fixed” you mean “having its balls cut off and hung on the mantle as a trophy to the brilliance of Hayek and von Mises”.
Along those same lines the Rioht has used Social Security ‘Crisis’ as a reason NOT to address any other issue on the progressive agenda. “Yeah we would like to address childhood hunger and early education. But you know those Greedy Boomer Geezers with their Lexus’s have piled up $12 or $200 trillion in Unfunded Liabiity and we just can’t afford it right now. Of course he youse guys agreed to de-ball and gut Social Security we could talk about proven market solutions to every problem in the world. But no you are clinging to your failed Big Government”.
Nobody wants to hear about Northwests Plan of phased in FICA increases that bear on workers only, or a plan of MJ.ABW that would target Real Wage. Nobody on the Right anyway. They NEED Social Security to be a perceived failutre to be bailed out, or NOT, on their terms. Because otherwise the serfs, err working class, might get out of control and start exercising direct democracy. Historically the biggest danger to elites from the Grachhi brothers revolt forward.
Webb – This is YOU post. YOUR post is about a CBO report. CBO (and SSA) are required to look at the 75 year horizon. My comments were about the CBO report. That report measures SS on the I&P number.
I harp on CBO and SSA numbers because they do shape policy. And as you have said many times, if you want to talk about SS you have to do it in the frame work that currently exists. And that means CBO and SSA.
Do I agree with this focus? No, never have, and have said so a number of times in comments at AB.
There are many things our government does that I don’t agree with. The 75 yr focus is just one of them. So what?
Do play nasty for fun? Or is this just another example of ‘bloody chum’ gone wrong?
Krasting you are responsible for your own arguments.
You say “Sustained solvency for the 75 year period should not be a focus of policy changes. We need to address the gap that we know is coming.”
But then deploy 75 year numbers. This is not about CBO’s argument it is about the one you tried to derive from it. And yours is inconsistent to the point of incoherency.
You want to talk about 2029 and 2034? Fine use the actuarial gap numbers for 2029 and 2034. You aren’t..
https://www.socialsecurity.gov/oact/tr/2015/IV_B_LRest.html#433140
The actuarial gap for 2039 under OAS IC is 1.39% as against the 75 year 2.68%. CBO doesn’t break it out that way but we can assume roughly the same ration between their 2039 and their 4.4% 75 year number. Which works out to be something like 2.4%.
” I don’t think mortality, % rates or changes to DI rates is a big factor when pondering what to do about 2029. That is just 13 years away. ….We need to address the gap that we know is coming.”
Your words your argument. And the “gap” “we know is coming” by 2029 is significantly less than the 2.4% it projects to be even under CBO’s numbers by 2039.
Flailing and failing. Hmm, how much of a 2% deficit could you make up in 15 years at 0.2% a year? ALL OF IT?
(Yes this would leave the new problem arising after 2029. But that is exactly what you Krasting are asking us to ignore. Here is your petard, hoist away.)
Everything produced in the future will be consumed in the future, and that future has nothing to do with collecting more payroll taxes now than are needed for the production of goods for today’s retirees. How much will be produced in the future depends on how productive the economy is in, you guessed it, the future. The CBO baselines are bunk, and they don’t tell you if future workers can produce enough for themselves and retirees. So long as workers can then SS is not bankrupt, nor underfunded.
Webb – How many times have you (and Coberly said at AB that your NW plan could, by itself, address the 75 year gap? How many spread sheets did you do to try to make that point?
And every time I said, “Nah, the hole is to big, it’s too late to fix it with NW”.
I never said that a plan that raised taxes (I&P or phased) would not push out the end date. I think you are playing the bait and switch.
For what it’s worth your plan will not, by itself, address the gap completely. You use “15 years”. I say that is the wrong number. We have been talking about CBO numbers with an end in 2029. And you surely agree that nothing can happen until 2017 with implementation in 2018. That’s only 11 years. Also, we can agree (I hope) that SS must have a year’s worth of reserves to remain functional and free from political BS.
With a years reserve your talking this to 2027 ish. To make scheduled payments AND increase reserves (TF ratio =1) can’t be done with just NW. 10 years is not enough time for it to work.
Anyway, just which next President do you see that will, in their first year in office, push an agenda to increase regressive taxes on workers for the next 15 years? NW, by itself, is not in the future. It has to be a combo regardless of which problem you choose to solve.
Krasting NW would address the 75 year gap.
YOU insist on addressing the 25 years. And you have not at all shown that NW would not do the trick either for the 25 or the 75.
Northwest was specifically designed to address all three standard tests for Social Security Solvency: “long term”, “sustainable” and “short term”. it passes all three. You want to say “so what if it passes long term, I want to talk about short term”.
Sorry Charley. We beat you to it. You want to talk 25 I’ll talk 25. 50? I’ll talk 50. 75 or Infinite Future? Friend we have looked at all those numbers.
Plus there is exactly nothing that would prevent the first two years from going for 0.4% rather than 0.2 to catch up. You are trying to bring political arguments into a numbers discussion. Yet are ignoring the political dimensions of every other proposed fix. You think benefit cuts and formula changes will be easy peasy and tax increases impossible? Well okay make that case. But you only want to address the half of each issue that is convenient for you.
Lets talk 25. Lets talk political. Lets not talk bullshit.
Ok – let’s talk political. Answer my prior question. Which Presidential candidate would advocate a payroll tax increase only solution for SS? Doesn’t matter which time horizon.
Who will be your champion?
Krasting you not only refuse to name your champion you never put forward a proposal. Never. Pure critic.
Sanders has put forward a plan with FICA increases. Clinton has endorsed a plan with FICA increases. Ironically each of those plans are MORE ‘progressive’ than Northwest. It is in the realm of the possible that politicians will coalesce around the Social Security Works “All Generations Plan” which proposes to enhance Social Security for lower income folk and women caregivers via a cap increase while incorporating a version of Northwest to provide an underlying revenue stream.
There is a Strengthen Social Security Coalition spearheaded by Social Security Works and CAF (Campaign for Americas Future) that has coalesced behind All Generations and published that plan last year in a book called ‘Social Security Works’. You could buy a copy and read it and not just to see Dale and me cited in a footnote. Which we are.
There is an active political coalition pushing All Generations, one that has wide support across the Democratic Party, including important Centrists. And I have been in active communication with its leadership who as a fault have explicitly incorporated a version of NW that was independently published and promoted by Virginia Reno, an immensely influential participant in this.
The Palm that emerges will not be called Northwest. And it will incorporate elements rather vehemently rejected by the principal author of Northwest, Dale will not be entirely pleased. But his influence will be visible to those who know where to look, in part because I have spent the last six years as a bridge between Northwest and DC.
Social Security is still the Third Rail of American Politics and the All Generations Plan polls extraordinarily well when field tested. Now enacting it will take an electoral earthquake that weakens current Republican lock on the House and marginal control of the House. Something nobody believed could happen in this cycle.
Until we entered the Trump Era, ironically a supoorter of SocSec. Will All Generations triumph in the next two years? Probably not. Will a version of it pass before I am eligible for early retirement? Maybe. Will my name be on it? No of course not. Will I be cited in a footnote and known as a friend to some of the principal authors? Yep.
Suck on that. 12 years ago I was a minor foot soldier in the Army of Dean Baker, a man widely mocked because of all things he was predicting a housing meltdown back in 2005. People don’t laugh as much at Baker today. Or at me for listening to him back in the day. Your claims that I am a political naïf don’t wound me in the slightest, on balance my position has been winning compared to a decade ago. Tho long road ahead.
Bruce:
Well said.
And Krasting you just don’t listen. I started out and largely remain a critic of a payroll only ‘solution’ to Social Security ‘crisis’. Northwest emerged as a compromise between ‘Nothing’ and two versions of ‘Something’ as a mechanism that would work no matter who was right on the economic and demographic projections. Arne thinks I exaggerate both the possibilities and effects of MJ.ABW. I in turn largely reject his read on the demographic numbers. And Dale tends to say “Just screw all that, let’s fix the damn thing on best accepted current number”. Northwest emerged from a multi-cornered fight that included Siteownr Dan and multiple others here at AB as an adaptable mechanism that will work in every probable outcome.
NW was designed as a mechanism that would set its dials at SSA’s Intermediate Cost alternative and establish inputs that would return Solvency. But in such a way that changes to IC would trigger changes in input. NW could have been designed around CBO and worked the same way. And one reason it wasn’t was that in 2009 CBO was much more optimistic than SSA and so the authors of NW took the more conservative tack. But the mechanism doesn’t work if you just change the central settings on an ad hoc basis. Because there is no fundamental commitment to SSA’s IC by at least one author (me). Instead I hope that the inputs can be ratcheted down as actual numbers come in. But it doesn’t matter if I am wrong, the mechanism solves the problem.
Dale is a teacher and a farmer and an accountant. Arne is an engineer. They are not dreamers, dreams don’t fix fences or balance books or design engineering solutions. Now me? I am a dreamer. But I am not the person who out the nuts and bolts of NW together. Just a dreamer with enough knowledge of the numbers and how they interact to see that NW will serve as a backstop to my own dream. Meaning I don’t need to fear being wrong or not so much. It things don’t go my way NW or All Generations will pick up the pieces. Because numbers.
Webb – I asked you which candidate will be the champion for the payroll tax increase only plan you advocate and you answer: “Because numbers”
There is no candidate that advocates a NW approach. And you bring up Altman and Baker as supporters. Okay – then show me where they are pushing for a tax only plan. Better yet, since you are in such close contact with them have them publicly come out in support for this – ain’t gonna happen. But if they did I would admit that I was wrong.
You say I’m a critic only – wrong again. Google me with Social Security – thousands of links to me appear.
I’ve always been a “Combo Man”. I favor things that lean in the direction of means testing, raising the cap, changing the formula and changes to COLA. My least favorite option is raising payroll taxes.
You constantly pound the table for MJ.ABW. Okay, but how do you square that with a plan that increases taxes on workers and their employers? You understand economics, so you know that raising taxes on middle class workers goes in the opposite direction of MJ.ABW.
You may be right about one thing – Trump might be your Champion. None of the others would support you. So can we conclude that you are a closet Trump guy??
Krasting you are the poorest reader I have met since the last troll on AB. You don’t want to understand my argument, still less counter it, you just look for snippets that can serve as hooks for your bullshit.
I never said NW would be adopted. I said it would work. To the extent that I have actively promoted an actual policy approach it was summed up in MJ.ABW.
You say you are a Combo Man. By which you mean “cut now” to avoid “cut later”. Give me a combo that doesn’t result in as much or more a cut as Nothing. Or you are just advocating a glide path to the same result.
Put enough numbers on the table so that we can compare them to NW and Nothing. Or quit your carping and sniping from the sidelines which just comes off as some attempts to score points or count coup and prove how smart BK is. Umm, we don’t care.
Option 2 & 3 look very much like NW. Looks like a benefit cut would still be needed but it would be smaller than currently projected. Those options also seem politically palatable.
I was born in late 63 and am self-employed so looks like I’ll get screwed any way you look at it.
Option 2 is a shorter version of NW which doesn’t complete the job. Option 3 is longer less intensive version of NW which doesn’t complete the job.
Each could have been structured to do so if for nothing else to demonstrate what a FICA only solution would look like. As it is it fosters a “we need to do all the above’ narrative that is not necessarily and exactly true.
Webb – I don’t see any Republican winning the election. I don’t see Sanders getingt the Democratic nomination. That leaves us with Clinton.
Last night she made a pledge – No new taxes on those making less than $250K.
Okay, maybe she is lying about that. But take her at her words. What does that do to any form of the NW plan?
Nothing…….
I see no political will to raise payroll taxes on workers who make less than $250k.
Me? I think the cap should be raised, but I am apposed to tax increases on those in the middle class who make less that the current cap of $118,500.
Raising the payroll tax on middle income workers goes against wealth distribution. It is bad social policy. It is bad economic policy.
What you have been advocating for years at AB is D.O.A.
Why don’t we just cut out the wasteful government bureaucracy and let people take money directly from their children and grandchildren?
“Why don’t we just cut out the wasteful government bureaucracy and let people take money directly from their children and grandchildren?”
Then the government would have to raise taxes; as it would no longer be able to hide military spending by borrowing from SS fund.
Warren Social Security has total administrative costs of less than 1% of benefits. For the retirement system in isolation that is 0.6% of benefits. How would working class people provide for any kind of retirement under a system where benefits from productivity improvements have always flowed forward to future generations without some sort of cost shift forwards.
Every future generation benefits for public and private investments in the past which in turn rely on the productivity of past workers. You would allow future generations to collect all gains without compensating for legacy inherited public assets and societal benefits from private investment.
Social Security is set up in a way that every future generation of beneficiaries gets a better basket of goods than the previous one. Your formulation would stint near term retirees in favor of longer term retirees for productivity improvements those future retirees didn’t contribute to.
You simply don’t understand the arithmetic here and are echoing Intergenerational Warfare arguments that sound plausible but are in fact self serving bullshit by long time enemies of Social Security like Peter G Peterson.
If you don’t recognize PGP and Rosser’s Equation you are part of the problem and not the solution. Listen and learn.
“are echoing Intergenerational Warfare arguments that sound plausible but are in fact self serving bullshit by long time enemies of Social Security like Peter G Peterson.”
Mr. Webb, you really are a word master. There’re nothing like getting a chuckle from such a concise and true statement. 🙂
“Listen and Learn”
I make it 3 to 5 odds that he will not do either. 6 to 5 against that he will do only one. 50 to 1 he does both……
“Then the government would have to raise taxes; as it would no longer be able to hide military spending by borrowing from SS fund.”
Good.
“You would allow future generations to collect all gains without compensating for legacy inherited public assets and societal benefits from private investment.”
Our national debt does that. Social Security is not required for that purpose.
“Your formulation would stint near term retirees in favor of longer term retirees for productivity improvements those future retirees didn’t contribute to.”
Isn’t the whole point of life to make things better for those who follow? How self-serving is it to make our children and grandchildren pay for the government largess we now enjoy?
But no, my “formulation” is simply to allow retirees to take whatever they want from their children and grandchildren. Simple. Direct. No government intervention required. No extra taxes.
Warren it is not clear that the whole purpose of life is to make things so much better for our grandchildren that we have to starve their great grandmother using a false narrative that the old witch stole their future from them so she could drive her Lexus to the golf course.
Which is EXACTLY the narrative the Intergenerational Warfare people are trying to sell. Rosser’s Equation already show that in Real Basket of Goods terms retirees in 2035 at worse break even (using Arne’s numbers) and real benefits go up from there. Where is the equity in cutting back current benefits in tne name of future benefits? Especially if the current cuts carry forward and smack the “victims” of Intergenerational War with those same cuts and more?
And your formulation is logically confused. Because the best way to accomplish it would be to do Nothing, allow retirees to collect Scheduled and stick their grandchildren with Payable That is your fith para is directly opposed to your sixth.
Unless you square the circle by saying that private theft by choice from your grandchildren is okay, even though morally full transfer would be “the whole point of life”. But having the government assist everyone to meet “the whole point of life” is itself immoral theft.
I am not saying you can’t make this coherent, you just have to go full Ayn Rand “Virtue of Selfishness” self-declaration as a sociopath. Cool go for it. Not accepting it for me and mine. (And mine are children of my nieces and nephews, it isn’t even about my progeny.)
“let people take money directly from their children and grandchildren”
I am pretty sure from your other comments that you should understand how insurance pools distribute risk. I don’t usually go for the anecdotal, but my aunt outlived both of her sons (who did have good careers). Your “plan” would not work for her, but SS does. A less than one percent administrative cost for a meaningful insurance pool is a good deal.
I love the idea that charging someone a couple bucks a week(and their employer) is not good for the economy.l
I mean, damn.
“Warren it is not clear that the whole purpose of life is to make things so much better for our grandchildren that we have to starve their great grandmother….”
I never said that, Bruce. I said let Grandma take what she thinks she needs from her children and grandchildren.
Arne, your aunt had no grandchildren?
“Unless you square the circle by saying that private theft by choice from your grandchildren is okay….”
What’s the difference between that and having the government take it for you?
How is one moral and the other not?
Now you are just liber-trolling. Have a good evening.